By Huw Jones
LONDON, March 4 Changes to how banks add up
risks on their books to determine capital levels are inevitable
and lenders must acknowledge there is a problem to be fixed, a
global banking supervisor said on Tuesday.
Stefan Ingves, chairman of the Basel Committee of banking
supervisors from nearly 30 countries, said variations in how
banks add up risks were "uncomfortably wide" but not all lenders
accept there is a problem in the first place.
"The message I would like to leave you with today is that
there is one (a problem), and we plan to do something about it,"
Ingves said in speech to a financial conference in New York.
"Question marks remain about the reliability and
comparability of risk-weighted asset calculations and, until
these are resolved, confidence in capital ratios cannot be fully
restored," said Ingves, who is also governor of Sweden's central
After pressure from British and U.S. regulators who say the
current rules are too complex and easily circumvented, it is the
clearest response yet from Ingves that major changes are in the
pipeline to restore public trust in lenders.
Many regulators are concerned about how the variations in
adding up risks leads to big capital differences between major
banks holding similar assets, making it harder for them to know
if they are holding enough capital.
Ingves said the committee will develop a set of
"simplifications and safeguards" to limit variability, perhaps
by putting curbs on the in-house models big banks use to add up
There could also be capital "floors" below which a bank
could not go, regardless of what their model tells them. Floors
could also be used to underpin capital levels to cover exposures
to specific products and markets.
The ability of national supervisors to exercise discretion
over risk weights could also be curbed, Ingves said.
There will be a public consultation over the summer on
proposed improvements from the Basel Committee to how banks give
information about their risk profiles and risk-weighted asset
differences to improve "market discipline", Ingves added.
Britain and the United States, due to their scepticism over
banks' internal models, have put greater emphasis on forcing
lenders to comply with a leverage ratio which sets a minimum
amount of capital regardless of an asset's riskiness.
Ingves alluded to this by saying that the case for a
stronger leverage ratio will only grow if banks fail to deal
with risk-weight variations adequately.
The committee is currently split over whether its
preliminary minimum global leverage ratio of 3 percent should be
fixed at a higher rate.